Economists Skeptical That GOP Tax Bill Will Boost Economy
MICHEL MARTIN, HOST:
We've heard a lot in recent weeks about who the winners and losers will be after the Republican tax bill becomes law. But there's also the question of who will win the economic debate at the heart of this bill, whether it's going to work out the way President Trump and GOP lawmakers have been selling it - that huge tax cuts for people and corporations will drive huge economic growth for the country.
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PRESIDENT DONALD TRUMP: The economy now has hit 3 percent. Nobody thought it would be anywhere close. I think we could go to 4, 5 and maybe even 6 percent ultimately.
MARTIN: That of course was President Trump talking last week as he left for Camp David. A lot of experts say, though, that they see a different outcome. To explain why, we're joined now by Princeton economist and former Fed Vice Chairman Alan Blinder. Professor Blinder, thanks so much for speaking with us.
ALAN BLINDER: Nice to be with you.
MARTIN: So history obviously is going to tell us who was right here, whether President Trump...
MARTIN: ...And Republican lawmakers will get the results they're promising, whether it's the economists who are raising concerns. You are one of those economists.
BLINDER: I am. And I can guarantee you, at least at the upper end - when the president went to 6 percent, I can guarantee you what history will say about that.
MARTIN: Which is what?
BLINDER: That it was wildly crazy. Three percent is not wildly crazy. It's just super optimistic. Six percent is wildly crazy.
MARTIN: Could you tell us a little bit more about why you say that?
BLINDER: Sure - because we have a modest growth of the labor force that's less than a half a percent a year. So to get to 6, that means you have to get to 5 and a half percent per annum productivity growth for a sustained period, which has never happened in the history of the U.S. data ever.
MARTIN: But we've heard that clip - we heard that clip from President Trump earlier. I mean, would it be fair to say that the economy is at 3 percent and that that was not expected either?
BLINDER: I think that's probably fair. But you want to remember he's talking about quarterly growth rates annualized. We have had any number of 3 percent-plus quarterly growth rates during the eight years that Obama was president, but the average was not 3 percent. So a 3 percent quarter now and again is not exactly a shocking development. Although I think it is fair to say that when President Trump got elected, most people would have predicted 3 percent for the recent quarter.
MARTIN: So before we let you go, could you just walk us through your baseline concern for people who are not familiar with what you've been saying? And I understand that you're still continuing to write about this. What is your biggest concern walking through the next year and then perhaps in the out years after that?
BLINDER: Yes. First of all, it blows a hole in the budget at a time when we don't really need this. We're at full employment. We don't need stimulus. It's not 2009. Secondly, while the president has claimed this is the biggest tax cut in history, which is blatantly false, it probably is the most regressive tax cut in history.
Thirdly or fourthly or whatever I'm up to, under the guise of achieving greater simplification - remember; it was going to be on a postcard. The law opens up a number of new and pretty egregious loopholes while closing very few. So we're going to get a more complex, more loophole-ridden tax code that's regressive and unbalances the budget. Now you can ask me, what's the good side?
MARTIN: Is there one?
BLINDER: I don't think is. No, there is a good side actually. I think it was a good move both on simplicity grounds and on distributional grounds to raise the standard deduction. That is mainly for lower- and middle-income people. The rich are itemizing their deductions. So that is a good thing and does achieve some simplification in the code.
MARTIN: Professor Blinder, thanks so much for speaking with us.
BLINDER: You're most welcome.
MARTIN: Princeton economist Alan Blinder is a former Fed vice chair. He also served on President Clinton's Council of Economic Advisers.
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